Editor’s note: This article was first published in March 2011, written on 28 March 2011. The results it compares are for 2010, and its remark about the market’s current volatility refers to that moment.
If someone asked me today whether I consider myself an “expert investor“, my answer would be a resounding NO. If anything, I think I’m still rather green and have a long way to go. That said, I make a point of surrounding myself with people who have been investing for more than 30 years. They don’t have blogs, they aren’t on social media and they’re certainly not “big names on the internet”, but they are my teachers and I know for a fact that they make their living from investing.
On the other hand, I rub shoulders with “expert investors” devoted to trading, who lecture me every day on how to approach investing and remind me that so far all I’ve had is luck, since I can’t read a chart and never stop to analyse a company’s P/E ratio. This very morning we put the numbers on the table and drew some conclusions.
Today, 28 March 2011, I can vouch that there must be people somewhere getting rich from trading, but I don’t know any of them. What’s more, from what I’ve seen, trading is the closest thing to playing the slot machines: “I’m losing, give me some change, I’ve got to win it back.”
The 5 expert traders we looked at placed an average of 700 buy and sell orders on the market in 2010, and only one of them didn’t lose money. Even so, with 815 buy and sell orders (3.3 a day), that strikes me as far too much work for so little return while taking on enormous risk.
On the other side of the table, my colleague Victoria Bernal and I, with 31 and 15 buy and sell orders respectively, ended the year with a striking return. Not to mention our dear mentor, who placed just 5 orders and managed to make more than €135,000 over the course of 2010, although admittedly the sums this person invests are quite large.
What does this tell us?
The message is very simple. I respect trading, but the truth is that the market isn’t suitable for trading every day. On some days you make more money by doing nothing, or at least you don’t lose any. Short-term investing is tempting, but it can’t really be done, especially with the volatility the stock market is going through right now. Besides, from what I’ve seen, trading tends to be addictive and isn’t for the faint of heart, and I still can’t see where the returns are supposed to come from.
If you ever hear that someone made more than €4,000 in a single morning, bear in mind that it may have been a great deal of luck or, more likely, that they’re lying to your face, because it isn’t normal.
Another lesson we can take from this is that you should never lose your humility, and that we should always be open to learning.
And as we’ve said before, you need patience to find the ideal moment to buy into a stock: aiming for the short term without becoming obsessed with it, and always being ready to turn a short-term investment into a long-term one if need be. Above all, it bears repeating that investing in the stock market is only as difficult as we choose to make it.
Once again, smart investing, which to me is simply common sense, wins the battle against all those complicated analyses.
Further reading
Featured image: Jeff Kubina from the milky way galaxy, CC BY-SA 2.0, via Wikimedia Commons.
